India’s real estate sector is anticipating a slowdown in growth across affordable homes, priced below ₹50 lakh, and mid segment ones, priced at ₹50 lakh-₹1 crore, on the back of rising mortgage rates. However, the super luxury segment, which includes residential properties above ₹1 crore, continues the bull run, according to several developers and analysts.
Growth in sales of affordable to mid-range homes is expected to slow down to 10 – 15 per cent in 2023 compared to 2022. Last year, growth was higher at 35-40 per cent compared to Covid-affected 2021.
Luxury home sales up
Super luxury home sales, driven by short supply and high personal wealth of buyers, are expected to increase sharply.
For instance, Mumbai saw a new high of revenue collections from property registration touch ₹1,102 crore in February 2023. It was a 79 per cent jump against last year’s February 2022 collections (₹615 crore). While revenue went up, property registrations saw a drop of 8 per cent to 9,511 registrations in February 2023 from 10,379 last February.
“This (increase in revenue from registration while actual number of registrations fall) clearly indicates that sale of big-ticket price homes (luxury homes) saw a significant movement upward,” Anuj Puri, Chairman, ANAROCK Group told businessline.
A major factor could also be the government’s recent move to cap capital gains at ₹10 crore, say some developers.
“This cap will come into effect from April 2023. So HNIs (high net worth individuals) across top cities, including Mumbai, are rushing to close luxury housing deals before the financial year ends,” Puri explained.
According to him, luxury housing has performed remarkably well post-pandemic, across the top seven cities – Mumbai, Delhi – NCR, Chennai. Bengaluru, Hyderabad, Kolkata and Pune.
ANAROCK Research suggests out of the 3.65 lakh units sold across the top 7 cities in 2022, about 18 per cent (approx. 65,680 units) were in the luxury category priced upwards of ₹1.5 crore. In contrast, just 7 per cent (17,740 units) of the total 2.61 lakh units sold in 2019 were in the luxury category.
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Recently, DLF’s massive success at its Gurugram offerings shows that there is actually a shortage of relevant super-luxury housing supply by high-grade branded developers, another developer explained.
This buyer segment is not affected by economic slowdowns and job market fluctuations since most tend to already be more than adequately capitalised. Moreover, most of these buyers are using personal wealth or cash (free money) for purchases, said Vivek Rathi, Director – Research, Knight Frank India.
At a global level, nearly 45 per cent such high net worth buyers are “cash buyers” - using own resources primarily over loans – Knight Frank’s research has found out.
“Considering trends so far (till Feb.-end), new launches may see 10-15 per cent dip as developers are equally conscious of the slowdown situation,” Rathi said.
At a market level, developers have been restraining supply and may continue to do so for affordable and mid-range housing.
In 2022, the share of affordable housing sales to total home sales had shrunk to 40-45 per cent, at the cost of larger mid-to-luxury. “And it may shrink further in 2023 by another 2-3 percentage (points),” Rathi said.
A 180–200 basis point mortgage rate hike over the recent months has resulted in a 12–13 per cent shrinkage in home-buyers’ ability to purchase, Knight Frank’s research showed. Similarly, ANAROCK’s research shows buyers have a comfort level of up to a maximum of 10 per cent (mortgage rates) that they can absorb. As mortgage rates move towards the double-digit mark and breach it, they start deferring purchases (slowdown in demand).
Dip in Jan–Feb Sales
According to Prashant Thakur, Senior Director and Head – Research at ANAROCK Group, early trends indicate as on February-end, there may be 5-10 per cent dip in housing sales in the first two months of 2023 against the preceding quarter (October-December 2022).
Closures are taking a higher time now. For instance, earlier, a site visit to a transaction closure was a 65-day process. But now, the timeline has increased significantly. IT cities like Bengaluru, Hyderabad, and Pune would see the maximum impact on demand., Thakur said.
CY2022 was a strong year in terms of launches and inventory levels are currently up. As a result, unsold stock is also up by 4-5 per cent, market sources said.
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